Tuesday, August 28, 2018

Younger Generations More Comfortable with Debt

More than three out of four American households (77 percent) are in debt, according to the Federal Reserve Board's 2016 Survey of Consumer Finances—not much higher than the 74 percent of 1998. This small increase masks a big rise in debt among older householders...

Percent of householders aged 65 or older in debt, 2016 (and 1998)
Aged 65 to 74: 70% (51%)
Aged 75-plus: 50% (25%)

What accounts for the large increase in debt among older Americans? A National Bureau of Economic Research paper sheds light on a possible reason for the rise. The analysis examines attitudes toward debt in Sweden by birth cohort. One of the key findings is that the percentage of Swedes who are uncomfortable with debt has fallen in more recent birth cohorts. Among survey respondents born from 1921 to 1940, 83 percent reported being uncomfortable with debt. Among those born from 1941 onward, a smaller 55 to 57 percent reported feeling uncomfortable with debt. Those who are uncomfortable with debt are less likely to be in debt, the study finds.

The same attitudinal shift has likely occurred in the United States, with the older debt-wary generations having been replaced by younger cohorts less concerned with debt. "A change in attitudes toward debt is potentially relevant for understanding the recently observed increase in debt," conclude the authors.

Source: National Bureau of Economic Research, Attitudes Toward Debt and Debt Behavior, Working Paper 24935 ($5)

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